Hostname: page-component-78c5997874-8bhkd Total loading time: 0 Render date: 2024-11-06T02:43:31.983Z Has data issue: false hasContentIssue false
  • English
  • Français

TRADE UNIONS, UNEMPLOYMENT, ECONOMIC GROWTH, AND INCOME INEQUALITY

Published online by Cambridge University Press:  01 August 2014

Juin-jen Chang  and
Hsiao-wen Hung
Juin-jen Chang
Affiliation:
Academia Sinica
Hsiao-wen Hung*
Affiliation:
Tamkang University
*
Address correspondence to: Hsiao-wen Hung, Department of Industrial Economics, Tamkang University, Danshui District, New Taipei City 251, Taiwan, Republic of China; e-mail: [email protected].
Get access Rights & Permissions [Opens in a new window]

Abstract

In this paper, unemployment, growth, and income inequality are interdependent and endogenously determined in a unified model of a trade union. Analytically, we show that the effective labor force exhibits an intensive margin response, in the sense that in response to higher unionization the number of employed workers decreases, but each individual employed worker provides more working hours. This intensive margin response leads to the possibility of the coexistence of high unemployment and high growth. Moreover, unionization gives rise to an ambiguous effect on income inequality, whereas it has an unambiguously positive effect on the labor income share and growth rate. Our numerical study shows that the elasticity of substitution between labor and capital plays an important role in governing the steady-state consequences and affecting the impact of (de-) unionization. These results provide not only a plausible explanation of the empirical evidence, but also a reconciliation for the disparity in the empirical findings.

Keywords

UnionizationIncome InequalityUnemploymentEconomic Growth
Type
Articles
Information
Macroeconomic Dynamics , Volume 20 , Issue 1 , January 2016 , pp. 404 - 428
Copyright
Copyright © Cambridge University Press 2014 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

Aghion, Philippe and Howitt, Peter (1992) A model of growth through creative destruction. Econometrica 60, 323–351.CrossRefGoogle Scholar
Aghion, Philippe and Howitt, Peter (1994) Growth and unemployment. Review of Economic Studies 61, 477–494.CrossRefGoogle Scholar
Alesina, Alberto and Rodrik, Dani (1994) Distributive politics and economic growth. Quarterly Journal of Economics 109, 465–490.CrossRefGoogle Scholar
Algan, Yann, Cheron, Arnaud, Hairault, Jean-Olivier, and Langot, Francois (2003) Wealth effect on labor market transitions. Review of Economic Dynamics 6, 156–178.CrossRefGoogle Scholar
Arpaia, Alfonso and Pichelmann, Karl (2008) Dimensions of Inequality in the EU. OeNB (Oesterreichische National Bank) workshop paper 16.Google Scholar
Asteriou, Dimitrios and Monastiriotis, Vassilis (2001) Trade Unionism and Growth: A Panel Data Study. Henley Business School, Reading.Google Scholar
Atkinson, Anthony B. (2008) The Changing Distribution of Earnings in OECD Countries. Oxford, UK: Oxford University Press.CrossRefGoogle Scholar
Baccaro, Lucio and Locke, Richard M. (1998) End of solidarity? The decline of egalitarian wage policies in Italy and Sweden. European Journal of Industrial Relations 4, 283–308.CrossRefGoogle Scholar
Barro, Robert J. (2000) Inequality and growth in a panel of countries. Journal of Economic Growth 5, 5–32.CrossRefGoogle Scholar
Barro, Robert J. and Sala-i-Martin, Xavier I. (2004) Economic Growth. Cambridge, MA: MIT Press.Google Scholar
Bean, Charles R. (1994) European unemployment: A survey. Journal of Economic Literature 32, 573–619.Google Scholar
Bean, Charles R. and Pissarides, Christopher (1993) Unemployment, consumption and growth. European Economic Review 37, 837–859.CrossRefGoogle Scholar
Bertola, Giuseppe, Blau, Francine D., and Kahn, Lawrence M. (2002) Comparative analysis of labor market outcomes: Lessons for the US from international long-run evidence. In Krueger, Alan B. and Solow, Rober (eds.), The Roaring Nineties: Can Full Employment be Sustained? pp. 159–218. New York: Russell Sage and Century Foundations Press.Google Scholar
Bjorklund, Anders and Freeman, Richard B. (2010) Searching for optimal inequality/incentives. In Freeman, Richard B., Swedenborg, Birgitta, and Topel, Robert (eds.), Reforming the Welfare State: Recovery and Beyond in Sweden, pp. 25–56. National Bureau of Economic Research. Chicago: University of Chicago Press.CrossRefGoogle Scholar
Booth, Alison L. (1995) The Economics of the Trade Union. Cambridge, UK: Cambridge University Press.Google Scholar
Brown, Charles and Medoff, James (1978) Trade unions in the production process. Journal of Political Economy 86, 355–378.CrossRefGoogle Scholar
Caballero, Ricardo J. (1993) Comment on Bean and Pissarides. European Economic Review 37, 855–859.CrossRefGoogle Scholar
Card, David (1996) The effect of unions on the structure of wages: A longitudinal analysis. Econometrica 64, 957–979.CrossRefGoogle Scholar
Card, David, Lemieux, Thomas, and Riddell, W. Craig (2004) Unions and wage inequality. Journal of Labor Research 25, 519–562.CrossRefGoogle Scholar
Carroll, Christopher D. (2001) A theory of the consumption function, with and without liquidity constraints. Journal of Economic Perspectives 15, 23–45.CrossRefGoogle Scholar
Chang, Juin-Jen, Shaw, Ming-Fu, and Lai, Ching-Chong (2007) A “managerial” trade union and economic growth. European Economic Review 51, 365–384.CrossRefGoogle Scholar
Chatterjee, Santanu and Turnovsky, Stephen J. (2012) Infrastructure and inequality. European Economic Review 56, 1730–1745.CrossRefGoogle Scholar
Chetty, Raj, Guren, Adam, Manoli, Day, and Weber, Andrea (2011) Are micro and macro labor supply elasticities consistent? A review of evidence on the intensive and extensive margins. American Economic Review: Papers and Proceedings 101, 471–475.CrossRefGoogle Scholar
Clark, Kim B. (1980) The impact of unionisation on productivity: A case study. Industrial and Labour Relations Review 33, 451–469.CrossRefGoogle Scholar
Clark, Andrew (1990) Efficient bargains and the McDonald–Solow conjecture. Journal of Labor Economics 8, 502–528.CrossRefGoogle Scholar
Clark, Andrew and Oswald, Andrew J. (1989) An Empirical Study of Union Preferences. Center for Labour Economics discussion paper 352.Google Scholar
Corneo, Giacomo and Marquardt, Marko (2000) Public pensions, unemployment insurance and growth. Journal of Public Economics 75, 293–311.CrossRefGoogle Scholar
Daveri, Francesco and Tabellini, Guido (2000) Unemployment, growth and taxation in industrial countries. Economic Policy 30, 47–104.Google Scholar
DiNardo, John, Fortin, Nicole M., and Lemieux, Thomas (1996) Labor market institutions and the distribution of wages, 1973–1992: A semiparametric approach. Econometrica 65, 1001–1044.CrossRefGoogle Scholar
Domenech, Rafael and Garcia, Jose R. (2008) Unemployment, taxation and public expenditure in OECD economies. European Journal of Political Economy 24, 202–217.CrossRefGoogle Scholar
Edin, Per-Anders and Holmlund, Bertil (1995) The Swedish wage structure: The rise and fall of solidarity wage policy? In Freeman, Richard and Katz, Lawrence (eds.), Differences and Changes in Wage Structures, pp. 307–344. Chicago: University of Chicago Press.Google Scholar
Eriksson, Clas (1997) Is there a trade-off between employment and growth? Oxford Economic Papers 49, 77–88.CrossRefGoogle Scholar
European Commission (2007) The labour income share in the European union. In Employment in Europe 2007, pp. 237–272. Luxembourg: Office for Official Publications of the European Communities.Google Scholar
Forbes, Kristin J. (2000) A reassessment of the relationship between inequality and growth. American Economic Review 90, 869–887.CrossRefGoogle Scholar
Fortin, Nicole M. and Lemieux, Thomas (1997) Institutional changes and rising wage inequality: Is there a linkage? Journal of Economic Perspectives 11, 75–96.CrossRefGoogle Scholar
Francis, Johanna L. (2009) Wealth and the capitalist spirit. Journal of Macroeconomics 31, 394–408.CrossRefGoogle Scholar
Freeman, Richard B. (1996) Labor market institutions and earnings inequality. New England Economic Review May/June, 157–168.Google Scholar
García-Peñalosa, Cecilia and Turnovsky, Stephen J. (2006) Growth and income inequality: A canonical model. Economic Theory 28, 25–49.CrossRefGoogle Scholar
Gordon, Robert J. (1997) The time-varying NAIRU and its implications for economic policy. Journal of Economic Perspectives 11, 11–32.CrossRefGoogle Scholar
Gregg, Paul, Machin, Stephen, and Metcalf, David (1993) Signals and cycles: Productivity growth and changes in union status in British companies, 1984–1989. Economic Journal 103, 894–907.CrossRefGoogle Scholar
Guscina, Anastasia (2006) Effects of Globalization on Labor's Share in National Income. IMF working paper 06/294.Google Scholar
Gustavsson, Magnus (2007) The 1990s rise in Swedish earnings inequality-Persistent or transitory? Applied Economics 39, 25–30.CrossRefGoogle Scholar
Hendricks, Lutz (2004) Accounting for Patterns of Wealth Inequality. CESIfo (Center for Financial Studies), Iowa State University, working paper.CrossRefGoogle Scholar
Holtz-Eakin, Douglas, Joulfaian, David, and Rosen, Harvey S. (1993) The Carnegie conjecture: Some empirical evidence. Quarterly Journal of Economics 108, 413–435.CrossRefGoogle Scholar
International Labour Office (ILO) (2008) Labour institutions and inequality. In World of Work Report 2008, pp. 71–114. Geneva: International Labour Office.Google Scholar
Irmen, Andreas and Wigger, Berthold U. (2003) Trade union objectives and economic growth. Finanz-Archiv/Public Finance Analysis 59, 49–67.CrossRefGoogle Scholar
Jayadev, Arjun (2007) Capital account openness and the labor share of income. Cambridge Journal of Economics 31, 423–443.CrossRefGoogle Scholar
Kahn, Lawrence M. (2000) Wage inequality, collective bargaining, and relative employment from 1985 to 1994: Evidence from fifteen OECD countries. Review of Economics and Statistics 82, 564–579.CrossRefGoogle Scholar
Kaldor, Nicholas (1957) A model of economic growth. Economic Journal 67, 591–624.CrossRefGoogle Scholar
Karabarbounis, Loukas and Neiman, Brent (2014) The global decline of the labor share. Quarterly Journal of Economics 129, 61–103.CrossRefGoogle Scholar
Klump, Rainer, McAdam, Peter, and Willman, Alpo (2007) The long-term SucCESs of the neoclassical growth model. Oxford Review of Economic Policy 23, 94–114.CrossRefGoogle Scholar
Koeniger, Winfried, Leonardi, Marco, and Nunziata, Luca (2007) Labor market institutions and wage inequality. Industrial and Labor Relations Review 60, 340–356.CrossRefGoogle Scholar
Kuznets, Simon (1955) Economic growth and income inequality. American Economic Review 45, 1–28.Google Scholar
Lemieux, Thomas, MacLeod, W. Bentley, and Parent, Daniel (2009) Performance pay and wage inequality. Quarterly Journal of Economics 124, 1–49.CrossRefGoogle Scholar
Lingens, Jorg (2003) The impact of a unionised labour market in a Schumpeterian growth model. Labour Economics 10, 91–104.CrossRefGoogle Scholar
Lundberg, Mattias and Squire, Lyn (2003) The simultaneous evolution of growth and inequality. Economic Journal 113, 326–344.CrossRefGoogle Scholar
Maarek, Paul (2012) Labor Share, Informal Sector and Development. MPRA paper 38756.Google Scholar
Machin, Stephen (1997) The decline of labour market institutions and the rise in wage inequality in Britain. European Economic Review 41, 647–657.CrossRefGoogle Scholar
McDonald, Ian M. and Solow, Robert M. (1981) Wage bargaining and employment. American Economic Review 71, 896–908.Google Scholar
Mezzetti, Claudio and Dinopoulos, Elias (1991) Domestic unionization and import competition. Journal of International Economics 31, 79–100.CrossRefGoogle Scholar
Nickell, Stephen (1997) Unemployment and labor market rigidities: Europe versus North America. Journal of Economic Perspectives 11, 55–74.CrossRefGoogle Scholar
Nickell, Stephen and Layard, Richard (1998) Labour Market Institutions and Economic Performance. LSE: CEP discussion paper 407.Google Scholar
Nickell, Stephen J., Wadhwani, Sushil, and Wall, Martin (1989) Unions and Productivity Growth in Britain, 1974–86: Evidence from Company Accounts Data. LSE: CLE working paper 1149.Google Scholar
OECD (2004a) Wage-setting institutions and outcomes. In Employment Outlook 2004, pp. 127–181.CrossRefGoogle Scholar
OECD (2004b) Benefits and wages: OECD indicators. In Directorate for Employment, Labour and Social Affairs. Available at http://www.oecd.org/els/benefitsandwagesoecdindicators.htm.Google Scholar
OECD (2007) Employment Outlook 2007.Google Scholar
OECD (2011) An overview of growing income inequalities in OECD countries: Main findings. In Divided We Stand: Why Inequality Keeps Rising, pp. 21–45. Paris: OECD Publishing. Available at http://dx.doi.org/10.1787/9789264119536-en.CrossRefGoogle Scholar
OECD (2012) Reducing income inequality while boosting economic growth: Can it be done? In Economic Policy Reforms 2012: Going for Growth, pp. 181–202.Google Scholar
Ono, Tetsuo (2010) Growth and unemployment in an OLG economy with public pensions. Journal of Population Economics 23, 737–767.CrossRefGoogle Scholar
Palokangas, Tapio (1996) Endogenous growth and collective bargaining. Journal of Economic Dynamics and Control 20, 925–944.CrossRefGoogle Scholar
Pemberton, James (1988) A “managerial” model of the trade union. Economic Journal 98, 755–771.CrossRefGoogle Scholar
Ramos-Parreño, J. Maria and Sánchez-Losada, Fernando (2002) The role of unions in an endogenous growth model with human capital. Journal of Macroeconomics 24, 171–192.CrossRefGoogle Scholar
Saint-Paul, Gilles (1991) Productivity Growth and Unemployment in OECD Countries. Paris: DELTA working paper 91-09.Google Scholar
Schulten, Thorsten (2002) A European solidaristic wage policy? European Journal of Industrial Relations 8, 173–196.CrossRefGoogle Scholar
Shister, Joseph (1954) Trade-unionism, collective bargaining, and economic growth. American Economic Review 44, 214–227.Google Scholar
Smeeding, Timothy M. (2002) Globalisation, inequality and the rich countries of the G-20: Evidence from the Luxembourg income study. In Gruen, David, O'Brien, Terry, and Lawson, Jeremy (eds.), Globalization, Living Standards and Inequality: Recent Progress and Continuing Challenges, pp. 179–206. Sydney: Reserve Bank of Australia.Google Scholar
Van der Ploeg, F. (1987) Trade unions, investment and employment: A non-cooperative approach. European Economic Review 31, 1465–1492.CrossRefGoogle Scholar
Visser, Jelle and Checchi, Daniele (2009) Inequality and the labor market: Unions. In Salverda, Wiemer, Nolan, Brian, and Smeeding, Timothy M. (eds.), The Oxford Handbook of Economic Inequality, pp. 230–256. Oxford, UK: Oxford University Press.Google Scholar
Wallerstein, Michael (1999) Wage-setting institutions and pay inequality in advanced industrial societies. Journal of Political Science 43, 649–680.CrossRefGoogle Scholar